Influence of PPP The United States has expected inflation of 2 percent, whereas Country A, Country B, and Country C have expected inflation of 7 percent. Country A engages in much international trade with the United States. The products that are traded between Country A and the United States can easily be produced by either country. Country B engages in much international trade with the United States. The products that are traded between Country B and the United States are important health products, and there are no substitutes for these products that are exported from the United States to Country B or from Country B to the United States. Country C engages in considerable international financial flows with the United States but very little trade. If you were to use PPP to predict the future exchange rate over the next year for the local currency of each country against the dollar, do you think PPP would provide the most accurate forecast for the currency of Country A, Country B, or Country C? Briefly explain.
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